The Economy's Worst May be Past

By Irwin Kellner, MarketWatch
Last update: 12:01 a.m. EST Feb. 24, 2009
Comments: 486
PORT WASHINGTON, N.Y. (MarketWatch) -- Although you wouldn't know it from the behavior of the stock market, the economic outlook is turning just a bit less gloomy.
Prosperity may not be just around the corner, but statistical evidence is mounting to suggest that the worst of this recession may soon be past.
And before you inundate me with email alleging that I am out of touch with the real world, let me say right at the top that I am not for one moment saying that the economy has stopped sliding. I am only suggesting that it appears to be contracting at a slower pace.
Clearly, this has nothing whatsoever to do with the stimulus package that the president signed into law last week. As a matter of fact, if the recession does end within the next few months, it will probably be in spite of this package, rather than because of it.
If you want a policy to credit, it's monetary policy. The combination of liquidity that the Federal Reserve has pumped into the economy, along with its special lending programs and capital injections into the banks, is largely responsible.
But you want more than assertions; you want proof. And here it is:
The Conference Board's index of leading economic indicators has risen for two months in a row.
Producer prices have increased for two straight months.
Consumer prices rose in January -- the first monthly gain in six months.
The Baltic Dry Index, which measures the cost of shipping key raw materials like copper, steel and iron, has more than doubled from its recent lows.
Existing-home sales rose in December, and participants in our weekly survey think that another rise took place in January.
Pending home sales went up in December.
Builders' confidence inched up this month.
Thanks to lower interest rates, applications for both new mortgages and refinancings of existing mortgages are rising.
Real hourly earnings rose 4.5% in December following a 3.3% increase in November.
An index of consumer expectations rose in January.
Retail sales shot up by 1% in January -- the first monthly rise since June.
The decline in consumer credit moderated in the latest month.
New orders for consumer and nonmilitary capital goods went up in January.
The ISM index of manufacturing went up last month.
The ISM index of services rose last month for the second month in a row.
The money supply is soaring, a sign that there's plenty of liquidity in the economy.
The 3-month London interbank offered rate, a measure of banks' willingness to lend to each other, has dropped to 1.2% from close to 5% a number of weeks ago.
Other measures of the state of the financial markets, like the TED spread and the 2-year swap spread are down, as well.
Prices of credit default swaps for banks have fallen from their peaks.
The corporate-bond markets are thawing out, too; some $127 billion in dollar-denominated debt was issued in January, the most for any month since last May.
Some securities on banks' books are starting to recover in value.
All this said, the economy is still a long way from a pink-cheeked state of health. But remember, you've got to crawl before you can walk. And it looks like the economy is about to do just that.
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.